Construction Works: Services or Goods?
Introduction – The Issue with Composite Contracts After the 18th Amendment[1] to the Constitution[2], goods are taxed by the federal legislature, and the services by the provinces[3]. There is no concurrency in tax. For a particular transaction, the tax is either levied by the federal legislature, or by the provinces. Under the current framework, the supply of goods is taxed by the center under the Sales Tax Act, 1990. The provinces, after the 18th Amendment, have promulgated provincial legislations to bring the taxation on services within their provincial domain. This arrangement works well when the goods are supplied separately; and the services are provided separately. But the arrangement comes under strain when the goods are supplied alongside services, or the services are provided alongside goods, in a manner, that the two, under the contractual arrangements, are not necessarily separable. Who, then, gets to tax and collect taxes levied on such activities? The central government or the provinces? The question arises particularly in the context of construction works. In Association of Builders and Developers of Pakistan v. Province of Sindh and others, 2018 PTD 1487 (Sindh) (“ABAD”)[4], the Petitioners before the Sindh High Court, for instance, were primarily, those entities that (1) purchased the land, developed it by laying down infrastructure, such as roads and sewage lines, and then parceled the land into plots, selling them onwards, and (2) constructed buildings, with shops, apartments and other such units, and sold them onwards, allowing payments, against those units, in installments. The question before the court was…